High Dividend Stocks
In the world of investing, dividend stocks stand apart from most investment vehicles because dividend stocks allow the investor to get a part of the company’s profits. That is not something you can say of most investment vehicles.
Below, we will give you a brief introduction to dividend stocks and high dividend stocks in particular.
What is a dividend?
Most public companies do not pay dividends. However, some companies, like Microsoft, will pay out dividends to their stock holders, where the stock holders are able to get a chunk of the company’s profits. One will have to carefully look through stocks in the market to find good dividend paying stocks. Finding good high dividend stocks can be even more difficult as there are few companies that still issue high dividend stocks, especially in today’s economy. Dividends can be paid at any time and in any amount, at the discretion of the company’s management.
Terms to understand about high dividend stocks
Dividend yield – A dividend yield is simply calculated by dividing the actual dividend amount by the stock price. The higher the dividend yield, the more the chances of a stock being considered as one of the few high dividend stocks in the market today.
What are some of the high dividend stocks that are available in the market today?
When one begins to hunt for high dividend stocks, they will often find that high dividend stocks are often offered in only a few select industries. Some of the most popular industries that have been known to issue high dividend stocks are industries such as real estate, telecommunications, utility companies and certain financial companies. Of late, it would be extremely difficult to find high dividend stocks in the financial industry as the whole finance industry is still crippled and trying to recover from the Sub-Prime crisis.
Apart from the above mentioned industries, high dividend stocks are also issued by companies that are profitable but also experiencing very little growth. Such companies will not have opportunities to reinvest their profits and will instead deploy the profits in the form of dividends that are paid out through high dividend stocks. For companies such as the ones just described, high dividend stocks will give them an option to keep shareholders happy. Shareholder might otherwise leave as there is not much room for the company’s stock price to appreciate.
It is important to look for high dividend stocks that will continue to grow
When hunting for high dividend stocks, it is very important that an investor not fall for high dividend stocks that simply pay some of the highest dividends in the market today. Instead, they should look for high dividend stocks whose stock price will continue to grow in the future.
Why some high dividend stocks are risky?
We just mentioned that you must be a little careful about choosing high dividend stocks. If you blindly pick high dividend stocks by selecting stocks with a high dividend yield %, you could be selecting stocks with a very low share price as opposed to picking stocks that pay good dividends. You must only look for stocks that have a high dividend yield and also a share price that is very competitive in the market.